Reference no: EM132305889

Purpose of the assessment

Students are required to demonstrate their ability to apply their knowledge of cost concepts to various costing systems and to justify costing system choices. Additionally, students are to critically evaluate and use accounting information to specific cases, for decision-making and achievement of business goals (ULO 1, 6 and 7)

Company name - Flight centre

Assignment Specifications

This assignment aims at developing your understanding of cost concepts, and demonstrate your ability to apply your knowledge of cost concepts to various costing systems and to justify costing system choices. Additionally, you are to critically evaluate and use accounting information to specific cases, for decision- making and achievement of business goals.

Instructions with Question 1 of the assignment.

This assignment is to be completed by a group of 2 - 4 students, as determined by your lecturer.

Each group is to choose one company from the top 100 ASX Company listing (available in Black Board) to answer Question 1 of the assignment. Register your group's company name with your Lecturer, no later than Week 6. Company names will be approved by your Lecturer on a first-come-first-serve basis. No group can choose the same company within the same class.

Assignment Structure should be as the following:

Question 1 a) Explain the value chain concept and discuss two (2) ways the value chain concept benefits organisations.

b) Based on the organisation that you have selected, evaluate the organisation using the value chain concept. This explanation should include:
i. An identification of the company's mission and objectives.
ii. A description of the competitive strategy (i.e. cost leadership, differentiation or focus) of the company.
iii. Draw the value chain model for the company. i.e. Tailor the model to your company's operations, identifying its value-adding processes and support departments.
iv. Choose any 2 value-adding processes of your company from the diagram in (iii), and for each, explain the process. Give some specific examples on what value it contributes to the company's products/services, leading to business decisions for improving customer and shareholder value.
v. Finally, comment on the relevance and usefulness of the information that you find in relation to your theoretical knowledge of the value chain concept.

Question 2

Prime Personal Trainers is a personal training service in Belgium for people who want to work out at home. Prime offers two different types of services: Setup and Continuous Improvement. Setup services consist of several home visits by a personal trainer who specialises in determining the proper equipment for each client and helping the client set up a home gym. Continuous Improvement services provide daily, weekly, or biweekly home visits by trainers.

Prime's accountant wants to create a job costing system for Setup services. She decides to use direct labour cost as the allocation base for variable overhead costs, and direct labour hours for fixed overhead cost. To estimate normal capacity, she calculates the average direct labour cost over the last several years. She estimates overhead by updating last year's overhead cost with expected increases in rent, supervisor's salaries, and so on.

Following are her estimates for the current period:

Direct labour hours (based on 250 normal hours per month)	3000
Direct labour cost	$        75 000
Variable overhead (primarily fringe benefits)	150 000
Fixed overhead (office related costs)	120 000

Inventories consist of exercise equipment and supplies that are used by Prime for new clients. The following information summarises operations during the month of October.

A number of new jobs were begun in October, but only two jobs were completed: Job 20 and Job 22.

Account balances on October 1:

Equipment and supplies (raw materials)	$ 5 000
Client contracts in process (Job 20)	3 500
Client contracts in process (Job 22)	1 500

Purchases of equipment and supplies:

Equipment	$ 54 000
Supplies	500
Total	$ 54 500

Equipment and supplies requisitioned for clients:

Job 20	$ 1 000
Job 21	500
Job 22	4 000
Job 23	5 000
Other jobs	40 000
Indirect supplies	500
Total	$ 51 000

Direct labour hours and cost:

	Hours	Cost
Job 20	10	$    250
Job 21	18	450
Job 22	15	375
Job 23	6	150
Other clients	180	4 500
Total	229	$ 5 725

Labour costs:

Direct labour wages	$ 5 725
Indirect labour wages (160 hours)	1 920
Manager's salary	6 250
Total	$ 13 895

Office costs:

Rent	$ 1 000
Utilities	100
Insurance and taxes	900
Miscellaneous	1 000
Total	$ 3 000

REQUIRED:

a) What are the estimated allocation rates for fixed and variable overhead for the current period?

b) What is the total overhead cost allocated to Job 20 in October?

c) What is the total cost of Job 20?

d) Calculate the amounts of fixed and variable overhead allocated to jobs in October.

e) Why would the accountant choose to use two cost pools instead of one? Will this method make a difference in client bills when the job includes more equipment and less labour than other jobs? Explain.

Question 3

Malekula Council owns and operates an animal shelter that performs three services: housing and finding homes for stray and unwanted animals, providing health care and veterinarian services for the animals, and pet training services. One facility is dedicated to housing animals waiting to be adopted. A second facility houses veterinarian services. A third facility houses the director, his staff, and several dog trainers. This facility also has several large meeting rooms that are frequently used for classes given by the animal trainers. The trainers work with all of the animals to ensure that they are relatively easy to manage. They also provide dog obedience classes for adopting families. Estimated annual costs for the animal shelter and its services are as follows:

Director and staff salaries	$ 60 000
Animal shelter employees' salaries	100 000
Veterinarians and technicians	150 000
Animal trainers	40 000
Food and supplies	125 000
Building-related costs	200 000

On average, 75 animals per day are housed at the facility, or about 27 375 (75 × 365) animal days in total. The number of animals housed during the year totalled 4500. In addition, the trainers offer about 125 classes during about 30 weeks throughout the year. On average, 10 families attend each class. Last year the veterinarian clinic experienced 5000 animal visits.

One of the director's staff members just graduated from an accounting program and would like to set up an ABC system for the shelter so that the director can better understand the cost for each of the shelter's services.
He gathers the following information:

Square footage for each facility:
Animal shelter	5000 square feet
Director and training	3000 square feet
Veterinarian clinic	2000 square feet
Percentage of trainer time used in classes	50%
Supplies used for veterinarian services	$75 000

REQUIRED:

a) Identify cost pools and assign costs to them, considering the three cost objects of interest.

b) Determine a cost driver for each cost pool and explain your choice.

c) Calculate the allocation rates for each cost pool and cost driver. Interpret the allocation rate for each cost pool (i.e., explain what it means).